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New Agency Plans to Make Over Mortgage Market

Richard Cordray, director of the Consumer Financial Protection Bureau, said he wanted to make getting a mortgage simpler.Credit
Daniel Rosenbaum for The New York Times

WASHINGTON — Over the next six months, the Consumer Financial Protection Bureau, a newly formed regulator vilified by the right, intends to overhaul the home mortgage market as a first step toward improving its fairness and clarity.

The goal is to remake the process of getting a mortgage, making it easier for borrowers to understand the kind of loan they are getting and its cost.

Such an achievement by the bureau — a lightning rod for criticism of the Dodd-Frank regulatory law passed by Congress in 2010 — would help to establish its legitimacy and quiet its critics as it approaches its first birthday this month.

Richard Cordray, a former Ohio attorney general who is the director of the bureau, said he wanted to show that the bureau could help consumers without drowning banks in red tape.

“We have an overarching goal here,” Mr. Cordray said in an interview in his office near the White House, “which is to restore trust in the consumer financial marketplace. I don’t think we are just a regulatory body or just an enforcement body.”

The mortgage market is at the top of the agenda because “it’s the market where consumers have the most at risk and they have the most at stake,” Mr. Cordray said. “I expect that the mortgage market in the fairly near term will look different in the sense that, first of all, it will be a clearer and more straightforward place for consumers, and second, it will be a more reliable market.”

This summer, the consumer bureau plans to propose rules that will address the biggest stumbling blocks buyers face. When shopping for a loan, consumers will get a more complete and understandable “good faith estimate” of the costs.

Before closing a sale, consumers will receive a single, revamped disclosure form of the terms — the interest rate that they will pay, how it could change over the course of the loan and how much cash is needed at closing. And mortgage servicers, the companies that collect the payments, will be required to provide clearer information, better service and options for a borrower facing foreclosure.

“If we do all of those things, from beginning to end, I think the mortgage process will work better,” Mr. Cordray said. “And that’s good for the economy.

“We’re in the fifth year now of economic slowdown — first of all, a crisis, and now a slowdown — because of what happened in the mortgage market. So it shows the real cost of having a system that did not work.”

In testimony before Congress, representatives of the Mortgage Bankers Association have said the group generally supports the consumer bureau’s efforts. But it also favors a go-slow approach, and its representatives have told Congress that they oppose some proposals, like a requirement that settlement disclosures be delivered three days before closing.

Heading toward July 21, its anniversary, the consumer bureau has other goals, like defining which nonbank financial companies will fall under the “larger participant” designation that will make them subject to the bureau’s oversight.

And it is scheduled to complete a study of the private student loan market. Last month, Congress approved a one-year extension of subsidized student loan interest rates, which means the issue will probably be the subject of political jockeying next summer.

Photo

Richard Cordray in his Washington office. He said his bureau’s goal was to “restore trust in the consumer financial marketplace.”Credit
Daniel Rosenbaum for The New York Times

The bureau also recently released an early version of a database of consumer complaints against credit card companies that will be expanded to include other financial service providers.

“It was an important step, although an imperfect one,” said Bartlett Naylor, a financial policy analyst for the consumer group Public Citizen, who said he hoped that the database would make it easier for consumers to learn from others’ experiences.

Mr. Cordray said that the consumer bureau’s activities would soon also reflect another part of its mandate — enforcement of consumer protection laws.

“There will be enforcement action this year, and we have quite a bit of activity going on,” he said, though he declined to offer specifics.

Jess Sharp, executive director of the Chamber of Commerce’s Center for Capital Markets Competitiveness, said the bureau needed to be clearer about how it would enforce its rules — beginning with, for example, defining “abusive,” a term included in the Dodd-Frank law but which is new in consumer protection law.

On Capitol Hill, the agency will probably face resistance from Republicans who dislike the creation of a government agency that they say lacks accountability. They want to change the bureau to a five-person commission, subjecting it to greater Congressional control.

“After six months, the only definitive conclusion one can reach about the C.F.P.B. is that it’s a rapidly expanding bureaucracy that is increasing costs on small businesses and remains completely unaccountable to the American people,” said Senator Richard Shelby of Alabama, the ranking Republican on the Senate banking committee.

The State National Bank of Big Spring, Tex., has filed a lawsuit in federal court in Washington challenging the constitutionality of the consumer bureau and other aspects of the Dodd-Frank law.

Under the law, the bureau was not entitled to begin formulating new regulations until it had a director, which it gained through a recess appointment in January by President Obama. The constitutional question concerns whether Congress was really in recess, and whether the appointment was legal. As it stands, Mr. Cordray’s recess appointment will last through the end of 2013, well beyond the end of Mr. Obama’s first term.

Other Congressional skeptics see the bureau as a rapidly growing appendage on the ship of state. In its first year, the consumer bureau has grown to roughly 900 people, a quarter of whom came from agencies absorbed by the bureau under Dodd-Frank.

Representative Randy Neugebauer, a Texas Republican who is the chairman of the House Financial Services oversight subcommittee and in whose district the Big Spring bank resides, said the bureau’s formation was “a typical Washington response.”

“When regulators weren’t doing the job they were supposed to do, they went out and created a new agency and hired more people to do the job they weren’t doing,” he said.

One of those agencies that clearly did not do its job was the Office of Thrift Supervision, a savings and loan regulator that was phased out. The consumer bureau has literally taken the place of the savings and loan regulators, moving into their offices.

But Mr. Cordray said he was confident that the consumer bureau would not suffer the same fate.

“If there are efforts made, whether in the near term or the long term, to cut back this agency, our best argument will be for us to show the work we are doing,” he said. “And I think we will show ourselves to be quite helpful to consumers.”

Correction: July 5, 2012

An earlier version of this article published online referred imprecisely to the initial limitations on the activities of the Consumer Financial Protection Bureau. Starting last July 21, it could supervise and enforce existing laws and regulations; certain aspects of its purview, including nonbank supervision, could not occur until a director was in place.